Numerous nalysts have trimmed their target prices for Wilmar International F34 following its 3QFY2024 numbers that fell short of expectations, no thanks to lower margins, especially from its China businesses.
Furthermore, existing geopolitical and economic risks might crimp the recovery of its share price, even though its current valuation is deemed "undemanding".
"Valuation will likely remain at a discount to its China-listed peers until earnings make a significant turnaround," states RHB Bank Singapore in its Nov 4 note.
On Oct 30, Wilmar reported earnings of US$254.4 million for 3QFY2024 ended Sept 30, down 1% y-o-y.
This brings 9MFY2024 earnings to US$834 million, down 3.6% y-o-y. Revenue for 3QFY2024 was held largely steady y-o-y at US$17.75 billion; and down 3% y-o-y to US$48.68 billion for 9MFY2024.
In their Nov 1 note, UOB Kay Hian analysts Heidi Mo and Llelleythan Tan Yi Rong maintain their 'hold' call but with a lower target price of $3, down from $3.25.
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They note that Wilmar's 4QFY2024 core net profit may be slightly higher q-o-q as tropical oil margins and soybean margins expand. Sugar merchandising and milling operations are also likely to see improvement.
"However, this may be partially offset by the slower-than-expected recovery in operating conditions in China, as well as weaker demand for refined palm oil products," the analysts state.
On the other hand, the frequent share buybacks by Wilmar’s chairman and CEO, Kuok Khoon Hong has demonstrated the management's confidence in the company's outlook.
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Year to date, Kuok, the company's controlling shareholder, has bought back 32.6 million shares at between $3.07 to $3.33, add Mo and Tan.
RHB, on its part, cut its forecast for Wilmar's FY2024 to FY2026 earnings by 9.1%, 3.9%, and 1.2%, after ascribing lower margins for the feed and industrial division.
While keeping its "neutral' call, RHB has lowered its target price to $3 from $3.10. "We believe Wilmar will trade in line with regional valuations until earnings undergo a significant turnaround," says RHB.
DBS Group Research's William Simadiputra is more upbeat.
In his Nov 1 note, he observes that Wilmar, given its "dominance" in palm oil and soy crushing, possesses a "strong footing" for it to make more gains in the downstream consumer segment.
"On the back of the recovery of China's economy and consumption trend, we believe the downstream division will provide tailwind for earnings in FY2025," states Simadiputra.
Meanwhile, he lowered his FY2024 and FY2025 earnings projections by 35% and 16% respectively to account for 9MFY2024 weaknesses and more conservative assumptions for consumer products in the coming FY2025.
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As such, even as he kept his "buy" call on this counter, Simadiputra's new target price for Wilmar is now $3.80, from $4.30 previously, which is based on 12.1x FY2025 earnings.
"We believe our multiple is fair, as it is largely in line with Wilmar’s five-year average P/E multiple of 11.8x.
"At the current share price level, we believe the valuation is undemanding, as the market has priced in a slower-than-expected earnings recovery outlook," states the DBS analyst.
In its Nov 4 note, OCBC Investment Research says that Wilmar's management remains cautiously optimistic about a satisfactory performance for 4QFY2024 as they expected improvements in palm production and refining margins for tropical oils while crushing margins for soybean are expected to remain positive.
However, OIR believes that the recovery of Wilmar’s business in China will take time. "A step-up of stimulus policy in China could support the recovery of consumption but headwinds are likely to remain in the near-term."
As such, OIR has lowered its earnings estimates for FY2024 and FY2025 by 14 and 19% respectively, leading to a lower fair value estimate of $3.54 from $3.81.
In his Nov 4 note, Maybank Securities' Thilan Wickramasinghe points out that despite increases in volume across all business segments, Wilmar got to keep on bearing tighter margins as prices remain "depressed" no thanks to weakness in China.
"We believe the prospect of a turnaround to be some way off in the near-to-medium term. We think a clear, sustained recovery in China is needed for this," says Wickramasinghe, as he lowers his target price to $3.17 from $3.25, while keeping his "hold" call.
